Ireland's used car values are predicted to rise in coming months as the Government's SSIA saving scheme payouts fuel demand for quality used cars.
While cash from the saving scheme will undoubtedly increase demand, particularly for cars under five years old, a recent index of prices has revealed that demand is already unusually strong for second-hand cars.
Figures from the annual GE Money Used Car Index show that the values of three-year-old used cars have increased across the board when compared to similar values in 2005. The biggest gains have been seen in the large family car sector, which saw the value of three-year-old family cars, such as the Avensis, Passat and Mondeo, rise 4 per cent.
The city car and the large executive sectors also showed healthy growth, both of which recorded value gains of 3 per cent. In real terms, this means a three- year-old BMW 5 Series or Audi A6 is now worth 56 per cent of its original value, or an extra €2,000, compared to values of similar cars in 2005.
Even the value of five-year-old cars have generally shown an improvement over the last 12 months, with large family cars again holding their value best.
The unusually strong demand for used cars last year, which drove the increase in residual values, also led to a large number of second-hand cars being imported.
Irish motorists took advantage of lower residual values and a better quality stock of used cars in Britain as well as becoming more educated about the VRT and tax implications of importing used cars. As a result, 2005 saw a rise of 71 per cent in the number of used cars imported and registered in Ireland.
Despite this influx of second-hand cars, which resulted in over 57,000 extra used cars being registered here, residual prices have remained strong. And this trend is expected to continue, especially as dealers develop promotions for their used car stock to capture SSIA payouts.
The first savers will receive their payouts in April. And when the scheme ends 12 months later, over one million Irish savers will have pocketed an average of €13,800 each.
While the motor industry predicts many people will buy new cars, which will drive sales to 185,000 by the end of the year, attention is also on the used car arena and car finance deals.
The majority of SSIA savers earn between €20,000 and €50,000, although almost a third earn less than €20,000. For them, financing car purchases may prove to be the most appealing, thus allowing them to use the lump sum for other purposes.
For savers already putting away the maximum €254 a month, they could fund €13,000 worth of borrowing over the five years of a typical car loan without any additional outlay.
According to Eoin Lynam, marketing director of GE Money: "The competition in the financial market is likely to intensify in the first half of the year with many commentators predicting that SSIA account holders will choose to hang on to their lump sum and borrow for the replacement car."
The €13,000 finance figure and the average payout sum of €13,800 also indicate that there will be a significant number of car buyers who will opt to upgrade their current car to a better quality used car, possibly jumping segments in the process.
A case of buying a used 3 Series rather than a new Corsa.
"With the average SSIA payment, the second-hand market is likely to be exceptionally busy from April onwards and we may even see a further hardening of prices," says Lynam. "While the past 10 years has witnessed a real social trend towards getting new cars, the heightened demand for trade-in models indicates an increased savvyness amongst the public who realise that they can satisfy their desire for status, luxury or speed without forking out the new car price."
This scenario is already being played out according to some in the motor industry.
Noel Daly, managing director of Toyota dealership, O'Mara Motors in Limerick, said SSIA savers are jumping the gun and already spending on cars. "We have already dealt with people who have borrowed on the back of their SSIAs to buy cars.
"The trend is to buy '05 and '04 cars - fresh trade-ins - rather than new."
Indeed, with the strong new car market, motorists looking to buy second-hand could find some good deals in the country's forecourts despite the predicted rise in used car values, as managing director of Dublin VW and Audi dealer, Foster Motor Company, Ian Macneill, explains.
"This will be a very good year to buy pre-owned cars. If the new car market stays strong, as it is expected to do, there will be a very good supply of quality used cars coming in to dealerships as trade-ins," he says.
"Price-wise, I don't think residual values will rise as high as expected.
"Although we have already noticed a growing demand for one and two-year-old cars, with the strong new car market, there may be an over supply and that will drive down prices."